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Gretchen Morgenson's Sunday column in The New York Times purports to champion the rights of average shareholders, aka, little guys, by shining a light on big, bad, self-interested managers and their Wall Street enablers. Trouble is, assigning white hats and black hats is not as easy as Morgenson would have her readers believe.
Take Morgenson's rant on July 7 against Midwest Air Group Inc., which rejected a $400 million takeover offer from AirTran Holdings Inc. "It is the kind of takeover bid that shareholders dream of, with a suitor offering a healthy premium and the potential for postmerger success," Morgenson writes. But Midwest directors "have staunchly rejected it," leaving "some Midwest shareholders [to] wonder whether the board is performing its duty to the company's owners or acting instead to benefit a management with whom it has long been associated."
Morgenson (who two years back produced a jeremiad on the evils of M&A in the Times Magazine) then describes the beauty of AirTran's bid — the 65% premium to Midwest's stock price last fall, its promise of new jobs — along with reasons why Midwest may have spurned it. The main obstacle, she concludes: Midwest chairman and CEO Timothy E. Hoeksema, who would likely lose his job if the airline is sold, without the benefit of a post-deal windfall. We don't know if AirTran's bid is good or not. But we do know there's more going on than Morgenson lets on. First, Midwest's customers are angry over a potential sale, citing the loss of its wide seats and baked-on-board cookies. Then there's Milwaukee, which fears losing its status as a hub. But for Morgenson, the only constituency that matters is shareholders. But even there she's less-than-forthcoming. What she doesn't reveal is that two of Midwest's four largest shareholders are hedge funds that bought into Midwest after AirTran announced its bid, hoping to make a quick buck on the sale. Morgenson goes out of her way to speculate on Hoeksema's motives for not selling. Shouldn't she say why some shareholders are so eager to sell? The following week, Morgenson was back on the anti-merger crusade with a column on NovaStar Financial Inc., a subprime lender. She quips that although NovaStar seems an unlikely takeover candidate — it has the usual subprime woes and has suffered legal setbacks — "we all know that anything can happen in mergerland." Indeed, she notes that there had been "whispers" over the past week that insurer Massachusetts Mutual Life Insurance Co. might put money into NovaStar. This irks Morgenson, who notes that MassMutual and NovaStar are "already connected." MassMutual's Babson Capital unit is a NovaStar shareholder, and Howard Hill, a Babson managing director, used to post bullish commentary on NovaStar, she reveals. She then compares Hill to John Mackey, the Whole Foods Market Inc. CEO pilloried for pushing his company's stock in chat rooms, even as Morgenson admits that a) Hill, unlike Mackey, used his real name and b) "Hill pretty much quit posting messages about NovaStar after he joined Babson." So he's not like Mackey at all. No matter. Morgenson is convinced something untoward is afoot. She says Hill published in January a bullish report on mortgages that turned out to be wrong. Her conclusion: "Certainly NovaStar's shareholders would love to see MassMutual, or anyone whose money is green, throw them a line. But would it be good for MassMutual's investors?" This left us scratching our heads. MassMutual's Babson serves sophisticated investors only, while MassMutual is owned by its policyholders. Why is Morgenson more concerned about them than NovaStar stockholders? And does she really think that an investment in NovaStar can do that much damage to MassMutual, with $450 billion in assets? The following day, a MassMutual buyout fund along with a Jefferies Group Inc. fund announced a $150 million investment in NovaStar, which led to more commentary. Now things got strange. It turns out NovaStar shareholders affiliated with the anti-naked-short-selling movement (led by Overstock.com's Patrick Byrne) had avidly boosted the lender's stock on the Web for years (while anti-Overstock stock columnist Herb Greenberg avidly railed against it). The boosters even had their own Web site, www.nfi-info.net, which, according to Gary Weiss' blog, often republished Hill's musings as "The Best of HHill." This helps explain why Morgenson was so intent on condemning Hill. What it doesn't explain is why, once again, she's left readers thinking extremely complex situations are cartoonishly simple.—Yvette Kantrow Categories Deal Video
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